Figure out how much you can afford for a home

Homeownership can be very exciting, but it isn’t always the best thing for everyone. Before you decide to buy a home, make sure you’ve carefully considered the costs.

According to Canada Mortgage and Housing Corporation (CMHC), your monthly housing costs, such as mortgage payments and utilities, shouldn’t be more than about 30% of your gross monthly income. For example, if your gross monthly income is $3,500, limit your housing costs to $1,050.

Also, your entire monthly debt load, including your mortgage payments and all your other debts, shouldn’t be more than 40% of your gross monthly income.

Saving for your home

To buy a home, you’ll need a down payment. You’ll also need money to pay for the upfront costs.

Make saving part of your monthly budget. Most employers will deposit your pay directly into your chequing or savings account. You'll find it easier to reach your saving goals if you set up automatic transfers to a savings or investment account each pay cheque. Use this tool to find a bank account that suits your needs.

Saving with a TFSA

A TFSA (Tax-Free Savings Account) is an account that lets you save or invest your money tax-free. You won’t pay tax on money you withdraw from your TFSA, and you can use your TFSA savings to help you buy a home.

Saving with a RRSP

A RRSP (Registered Retirement Savings Plan) is an account that allows you to save money for your retirement and delay paying taxes on it. You don’t pay taxes on your savings until you withdraw money from the RRSP.

Shop around for a mortgage

Lenders may have different interest rates and conditions for similar mortgages. Talk to several lenders to find the best mortgage for your needs. You can get a mortgage from:

Mortgage lenders – These lend money directly to you. Be sure to explore the different types of lenders that are available, including banks and credit unions and the mortgages they offer.

Mortgage brokers – They don't lend money directly to you. Mortgage brokers arrange transactions by finding a lender for you. Since brokers have access to a number of lenders, they may give you a wider range of mortgages and terms to choose from. Mortgage brokers are paid a commission by the institution that provides the loan, so there’s no cost to you.

Mortgage loan insurance

If your down payment is less than 20% of the price of your home, you need to purchase mortgage loan insurance. In some cases, you may need to get mortgage loan insurance even if you have a 20% down payment.

Mortgage loan insurance protects the mortgage lender in case you’re not able to make your mortgage payments. It does not protect you. Mortgage loan insurance is also sometimes called mortgage default insurance.

Tax credits for homebuyers

The Government of Canada offers two tax credits for specific types of homebuyers. Your provincial or territorial government may also offer other home-buying incentives.

The Home buyers’ amount

You'll get access to this tax credit once you’ve purchased your first home and submitted a tax return. This tax credit is an effective means of offsetting some of the upfront costs associated with buying a home, such as legal fees and land transfer taxes. Eligible homebuyers may receive a tax credit of up to $750.

Home buying costs

When you buy a home, you’ll have to pay for upfront costs in addition to your mortgage. These are called closing costs. You can expect to spend between 1.5% and 4% of the home’s purchase price on closing costs. You usually pay these costs by the time the sale is completed or “closes”.

Legal costs

You'll have to pay legal fees on your closing day. This is the day that your home purchase is complete. These fees are usually at least $500 but will vary depending on your lawyer’s rates.

A lawyer can help protect your legal interests. For example, a lawyer will make sure that the home you want to buy does not have a lien against it. A lien is a legal claim over another person’s property that someone files to ensure a debt gets paid.

A lawyer will also review all contracts before you sign them, as well as your offer or agreement to purchase.

Home insurance

You must have home insurance in place as a condition of getting a mortgage.

Home insurance can help protect your home and its contents in case of theft, loss or damage to the inside and outside of your home or property.

Land registration

Before the sale closes, you're required to pay to register your property’s title under your name. This may be called a “land transfer tax,” a “deed registration fee,” a “tariff” or a “property purchases tax.”

The cost is a percentage of the home’s purchase price; for example, if your land transfer tax is 1.5% and your home cost $300,000, you’ll pay $4,500.

Adjustment costs

The seller of the home you’re buying may be entitled to “adjustments.” For example, if the seller has already paid the property tax on the home past the purchase closing date, the seller will receive a credit on the closing date. You must then pay this credit amount to cover the money already paid by the seller.

New build GST/HST

Generally, if you buy a “new build” home, you'll have to pay GST or HST. Some builders include the HST in their sale price while others don’t, make sure to check. Otherwise, you’ll have to pay this cost upfront on closing day.

Other closing costs may include

Interest adjustments (for the period between your purchase date and your first mortgage payment)

Home buying and newcomers to Canada

Buying a condominium

Condominiums, or condos, are shared properties that contain individual housing units. Each unit has its own owner. Owners share the common areas outside of the unit such as the lobby and parking lot.

There are pros and cons to owning a condo. For example, if you buy a condominium or condo, you'll have to pay monthly condo fees. However, you may like the idea of sharing the building maintenance costs with the other unit owners.

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